Latest market news

High upgrading margins boost urea

  • Market: Fertilizers
  • 30/05/19

Weak ammonia prices have raised the upgrading margins on urea production to their highest since 2012.

Upgrading margins have averaged about $100/t since the second half of 2017, nearly 50pc above the long-term average, according to analysis by Argus consultants (see upgrading margins chart below).

Short payback period

The increased margin has raised the attractiveness of new urea capacity. Argus estimates that the return on investment period for a new 2,000 t/d urea plant in Russia is only 4-5 years based on current margins and an estimated capital cost of around $200mn for such plants.

Three Russian producers — Acron, Togliatti Azot and Kuibyshev Azot — have so far decided to add urea capacity to convert ammonia that is currently sold on the open market.

A fourth, Schekino Azot, is building new urea and nitrates capacity, but is also building a new ammonia plant so the net reduction in ammonia supply will be small.

Argus' urea-ammonia upgrading margin is created by subtracting the product of the ammonia price and a urea plant's ammonia consumption rate — assumed at 575 kg/t — from the urea price. This provides a measure of the added value that can be achieved in the urea market above the input cost of ammonia.

The historical average for this value is around $80/t, which needs to cover the conversion costs on a urea plant — power, chemicals and consumables, labour and maintenance — and provide a level of return to incentivise the operator to produce and sell urea, rather than selling the ammonia. At $80/t, a marginal plant can cover costs of $50-60/t.

Merchant ammonia weakness

The rise in urea margins has been driven by the comparative weakness of merchant ammonia prices, which recently fell to two-year lows, and the comparative firmness of urea (see differential chart below).

Upgrading margins averaged only about $40/t between September 2012 and August 2017, making ammonia a more profitable product than urea. But the situation has reversed since then, especially in the past nine months, which have seen a near continuous fall in ammonia prices.

Black Sea ammonia prices are about $220/t fob at present, compared with urea at $250/t fob.

Merchant ammonia trade is small, totalling only 18mn-19mn t/yr, so relatively minor changes in supply and demand have a large influence on pricing. Urea trade is around 48mn t/yr, with prices correspondingly more stable.

New ammonia plants are ramping up to full production in Russia, the US and Indonesia that will add more merchant ammonia supply. At the same time, it appears that ammonia import demand in China has fallen this year as domestic producers have increased their share of the local market.

As a result, ammonia prices are forecast to average below $230/t fob Black Sea in the coming year.

In contrast, urea prices have averaged $241/t fob Black Sea — $12-13/t higher than last year — and are forecast to average close to $260/t fob in the coming year.

Market implications

The rise in urea capacity will reduce the supply of merchant ammonia from Russia from 2021 onwards, when the new plants are scheduled to start production.

The three new units in Russia will require about 1.1mn t/yr of ammonia to run at full capacity, implying a drop of that amount in merchant ammonia supply from the country.

This is a significant amount, representing more than a quarter of the 4.2mn t of ammonia that Russia exported in 2018.

The stronger margins also raise the question of whether there are other producers that may decide to install urea units.

Trinidad and Tobago is the largest exporter of merchant ammonia in the western hemisphere, exporting close to 3mn t/yr, although analysts doubt that there is significant potential for additional upgrading in the country given the age of the plants and continuing concerns about gas supply.

But further north in the US there are a number of plants supplying the near 3mn t/yr market for direct application ammonia, and delivering ammonia to the key consuming states in the Corn Belt will become more challenging from summer 2019 onwards owing to the permanent closure of one of the two dedicated pipelines. The Magellan pipeline, running between plants in Oklahoma and terminals in the western Corn Belt, will close this year. Owners of plants linked to Magellan either need to find alternative means of transport or look to upgrade more ammonia to urea, UAN or DEF.

Urea upgrading margins/Ammonia-urea differential

Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
20/09/24

Consortium makes progress on US NH3 bunker vessel

Consortium makes progress on US NH3 bunker vessel

Tokyo, 20 September (Argus) — A group of companies continue to make progress on developing a ship-to-ship ammonia bunkering vessel for the US east coast, targeting to begin commercial operations by 2030. The consortium received in principle approval in August for their ammonia bunker vessel from US classification society the American Bureau of Shipping (ABS). The seven companies comprise Japanese trading house Sumitomo, ABS, Hong Kong-based shipping firm Fleet Management, American ship management company TOTE Services, Danish shipping firm AP Moller Maresk, Maresk's decarbonisation research institute Maersk Mc-Kinney Moller Center for Zero Carbon Shipping (MMMCZCS) and the US' Georgia Ports Authority. US marine engineering firm Vard Marine US also took part in barge design and engineering. The bunker vessel is designed to be capable of supplying fuel ammonia to Norwegian shipping company Hoegh Autoliners' car carriers, as well as an ammonia-fuelled container vessels developed by MMMCZCS. This will be the first ammonia bunkering vessel in the US, Sumitomo said. The partners expect to operate the ship on the east coast of the US such as Jacksonville port in Florida and Brunswick and Savannah ports in Georgia. These ports are increasingly receiving container ships and car carriers, with Sumitomo expecting demand for fuel ammonia for such vessels to grow in the future. Sumitomo is in charge of building a supply chain of green or blue ammonia for bunkering. It now plans to buy blue ammonia from the US Gulf of Mexico region, without specifying volumes. The company aims to enhance its carbon neutral marine fuel and ammonia bunkering businesses with the US project. It has also participated in an ammonia bunkering project in Singapore , aiming to commercialise it by the mid-2020s. By Nanami Oki Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Find out more
News

Kenya's NCPB receives offers in fertilizer tender


19/09/24
News
19/09/24

Kenya's NCPB receives offers in fertilizer tender

Istanbul, 19 September (Argus) — Kenya's NCPB has received offers against its 19 September buy tender for 245,000t of various fertilizers for the 2024-25 season under the country's fertilizer subsidy programme. There were 19 offers of 25-5-5, all within a range of 3,750-5,500 Kenyan shillings/50kg bag, equivalent to $581-852/t. There were also 19 offers of 17-17-17, ranging from KSh3,800-5,800/50kg bag. The NCPB received 23 offers of urea at KSh3,400-6,000/50kg bag, 12 offers of amsul ranging from KSh2,800-5,400/50kg bag, and 18 offers of CAN in a range of KSh2,875-4,250/50kg bag. The offers were on the basis of deliveries to NCPB depots. The tender requested the following products: 25,000t urea (500,000 x 50kg bags) 40,000t CAN 26 (800,000 x 50kg bags) 5,000t amsul (100,000 x 50kg bags) 15,000t 17-17-17 (300,000 x 50kg bags) 15,000t 25-5-5 (300,000 x 50kg bags) 35,000t 23-23-0 (700,000 x 50kg bags) 10,000t crop-specific NPK fertilizer for top dressing with a minimum nitrogen nutrient content of 26pc plus other micronutrients (200,000 x 50kg bags) 70,000t crop-specific NPK fertilizer for planting with a minimum nitrogen nutrient content of 17pc and above, a minimum phosphorus content of 29pc and above, plus other micronutrients (1,400,000 x 50kg bags) 30,000t crop-specific NPK fertilizer for planting with a minimum nitrogen nutrient content of 9-16.99pc, a minimum phosphorus content of 22-28.99pc and above, plus other micronutrients (600,000 x 50kg bags) The NCPB said agreed contracts are renewable each season for a period of two years under the subsidy programme. The tender document also states that a supplier will not be awarded for the supply of more than two fertilizer types. By Nykole King Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Pupuk Indonesia closes tender to buy amsul


19/09/24
News
19/09/24

Pupuk Indonesia closes tender to buy amsul

Singapore, 19 September (Argus) — State-owned Pupuk Indonesia has closed a tender to buy 30,000t of bulk standard caprolactam-grade ammonium sulphate (amsul) for shipment to two different ports by the end of October to early November. Pupuk requested that bids be submitted based on a formula price with an added premium. The range of premiums offered by participants was around $13/t, bringing delivered prices to a low-mid $150s/t cfr. Pupuk Indonesia requested for 20,000t of amsul in a single shipment to Gresik port for Petrokimia Gresik, to be delivered by the fourth week of October. It also requested for 10,000t of standard amsul in a single shipment to Cigading port for Pupuk Kujang, to be delivered by the first week of November. By Dinise Chng Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Gas returns to Egyptian urea plants


19/09/24
News
19/09/24

Gas returns to Egyptian urea plants

Amsterdam, 19 September (Argus) — Gas supplies have returned to three Egyptian urea producers that had halted output earlier this week. The three plants of Alexfert, Helwan and another unidentified producer have a combined capacity of around 1.85mn t/yr. The disruptions emerged on 16 September when state-owned Gasco sent a letter to the producers informing them that the gas supplies would be cut. Overall urea operating rates in Egypt are to remain under pressure, at likely 80pc or below, as producers grapple with the shifting feedstock situation. Algerian producer Sorfert is also set to cut production at its 1.19mn t/yr granular urea plant to minimum rates next month, with output to be lower during October because of a turnaround. By Dana Hjeij and Harry Minihan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Malaysia’s January-July urea exports rise


19/09/24
News
19/09/24

Malaysia’s January-July urea exports rise

Singapore, 19 September (Argus) — Malaysia's urea exports during January-July increased by 4pc from a year earlier to 1.17mn t supported by firm deliveries to Australia, despite multiple turnarounds and production disruptions at state-owned producer Petronas' plants. Petronas took its 700,000 t/yr Bintulu urea plant off line on three separate occasions in February, early May and late June, with each turnaround spanning around two weeks or more. The most recent two-week turnaround at its Bintulu plant was completed in early July. Petronas also took its 693,000 t/yr Gurun plant off line in mid-May for around two weeks. But Petronas was still able to cater to its term commitments, with deliveries rising slightly compared with last year, especially to key markets like Australia. Deliveries to Australia rose by 7pc during January-July, largely because of a good monsoon season and heavy rainfall on Australia's west and east coasts that spurred domestic urea demand. This encouraged Australian importers to seek more cargoes during the peak application season from southeast Asia producers like Malaysia and the Middle East. Deliveries to Mexico also increased to 113,800t against 33,000t the previous year. Exports to New Zealand rose to 60,500t compared with 21,700t during January-July last year. Exports to Thailand fell by 30pc as Thai importers sought more Indonesian-origin cargoes this year, likely during occasions where there had been unexpected production disruptions at Petronas' urea units. Some Malaysian urea deliveries to southeast Asia were likely also replaced by increased Indonesian urea exports. Pupuk Indonesia had abundant urea inventories and export availability because of fewer turnarounds at its Kaltim urea plants. Exports to the Philippines fell by 44pc during January-July, largely because of reduced overall demand from Philippine importers citing high inventories. Bad weather and the absence of fertilizer subsidies also dampened overall urea demand. Exports to Myanmar (Burma) also slipped by 53pc as its importers sought cheaper urea from Oman as an alternative. Malaysia's urea exports in this year's fourth quarter are expected to increase. On top of term commitments, at least 40,000t of spot urea is to move to east coast India and some other cargoes and commitments are destined for regional markets and the west coast of Latin America. By Dinise Chng Malaysia urea exports (t) Thailand Australia Philippines Others Total Jan 41,247 32,000 40,045 139,005 252,297 Feb 15,321 400 6,604 91,083 113,408 Mar 27,629 33,001 21,421 50,338 132,389 Apr 33,511 33,057 5,685 42,332 114,585 May 30,368 30,001 2 133,992 194,363 Jun 30,183 32,615 3,490 32,027 98,315 Jul 46,354 96,442 23,880 101,586 268,262 Total 224,613 257,516 101,127 590,363 1,173,619 Source: GTT Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more